No Pain, No Gain: The connection's good, but it's too early to call
Saturday 12 February 2005
Share consolidation is an exercise that appeals to many directors.
Share consolidation is an exercise that appeals to many directors. There seems to be a deep rooted feeling that it is better to preside over a company with, say, a 50p share price than one where the shares are bumping along at a measly few coppers. I suspect most shareholders could not care less. They are in the investment game to make money. And it is possible, of course, to reap rich rewards (and suffer horrendous losses) whatever the value of a share.
However, it may be foolish to regard a consolidation (when usually 20 shares become one) as merely a cosmetic makeover. Although any capital reorganisation is a costly undertaking, there must be eventual savings when the number of shares in issue is dramatically reduced. There are also expectations that the spread between the buying and selling price will become more tolerable. But the big question is whether, as some believe, it has an uplifting influence on the share price.
The stock market is littered with examples of when turning a flyweight into a heavyweight has failed to have any rewarding impact. Continental Foods, quite a successful business, grew tired of an unflattering share price. So it hit upon the idea of a big consolidation which, it fondly imagined, would produce a share price of more than 100p. It didn't work. The shares hovered around 100p for a while and then slipped to about 60p. Not long afterwards, the company was taken over at 108p a price well beyond the stock market's radar. More recently Galleon, an active little intellectual property group, indulged in a massive consolidation. Any reward has yet to filter through to shareholders.
But not all consolidations end in tears. One company that appears to be convinced it should leave the ranks of the penny stocks is IDN Telecom, a successful little enterprise that last week enjoyed the distinction of reporting a 155 per cent profit advance. Clearly it is no slouch in the performance stakes but it thinks its endeavours would be appreciated much more if its shares, now around 3p, commanded a higher price. I have no idea what the terms of any consolidation will be but I suspect any capital changes will go alongside corporate action.
For IDN is on the look out for acquisitions, probably bolt ons, although the chance of a significant buy would not be turned away. Since its shares arrived on the stock market in 2000 - too late to enjoy the internet explosion - they have remained in the low price basement. Their highest level is around 6.5p.
In its early stock market days IDN failed to cover itself in glory. Losses mounted. Then the current chief executive, Mike Morrison, took charge. Within a short time IDN was making profits, albeit a mere £5,000 over six months. But in the year to October 2003, profits grew to £258,000. Last year's figure was £659,000 (representing 5 per cent of revenue) with SQC Research predicting £900,000 this year and £1.175m next. Tax losses, which should protect earnings for a time, tot up to £2.6m. And there is cash (around £200,000) in the bank.
Under its new management IDN (Independent Digital Networks) has evolved from a loss making company offering basic telephone services into a successful and wide ranging telecommunications consultancy. Its expertise lies in analysing a company's communication needs and providing the most appropriate and cost-effective solution. There are approaching 1,000 customers, mainly small and medium sized organisations. Says chairman Barry Roberts: "Our clients are too small for the big boys to worry about and too big for the small operators to service. IDN, as a sideline, also has a directory inquiries services (118522), which taps into the BT directory system.
It is capitalised at around £12m. With nearly 388m shares in circulation and more than 1,000 shareholders the temp-tation to go for a consolidation is obvious. IDN is a smashing little company which would be ideal for the no pain, no gain portfolio. It is well run and has the potential to evolve into a significant player in the growing telecommunications industry.
But two possible influences prompt me to hesitate over its inclusion. Former directors are still significant shareholders. They have been selling and I believe will continue to do so. The other worry is that consolidation. Shareholders may well benefit but I think, in view of past experiences, I would rather wait until its impact is assessable. So I have decided to keep my ammunition dry. After all, this particular telephone connection will become much clearer when the share overhang is eliminated and the reaction to the share reorganisation is apparent.
Fuel poverty could kill 100,000 vulnerable people over the next 15 years, charity warns
Phoenix Life: Chance of a refund for overcharged policyholders has risen
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
Simon Read: That's right, BT, they'd rather pay for a free service
Bank-beating exchange rates on your international payments
- 1 Forget 'The Dress': Here are five of the biggest news stories you might have missed
- 2 The black and blue dress: Makers considering a white and gold version
- 3 PornHub turns masturbation into energy in bid to save the planet
- 5 Saudi Muslim cleric claims the Earth is 'stationary' and the sun rotates around it
New theory could prove how life began and disprove God
Half of Ukip voters say they are prejudiced against people of other races
This is what it's like to be dead, according to a guy who died for a bit
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Ukip would cut billions from Scottish budget to fund English tax cuts
iJobs Money & Business
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...
£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...
£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...
Day In a Page
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads